28 June 2008
Times of India. REVA Electric Car Company (RECC) plans to increase its
production capacity from 6,000 to 30,000 units by the end of the year
because of increased demand. ;-)

I would guess that production increases are common among electric
car producers.

Yes, when you start at the bottom with no sales, the only way you can
go is up. But you are helping to make my point. The only companies
that can be expected to grow are ones that have virtually no sales
because they are new.

I beg to differ. I think that many companies can be expected to
grow or remain stable over the next year. Among them are companies
producing and distributing basic foods and groceries and companies
producing medical and health-care products.

For example, Pfizer's stock price today is about where it was
last July.

I also think that the car companies shot themselves in the foot
when they started producing and advertising cars that are
good for 100,000 miles or 10 years of normal usage. Gone
are the days when you needed a new car every 5 years to keep
the reliability satisfactory.

You must be an ex-Detroit employee.

Nope. Never worked east of the Mississippi except in the Navy.

Those days were gone 20 years
ago.

My point exactly.

That was the attitude of the US automakers for many, many years,
that to boost sales you needed to make sure the old car wore out
quickly. But then Toyota is now the largest auto maker in the world
by building quality vehicles. And they have never had to offer a
100,000 mile warranty.

Isn't it a bit silly to think that a longer warranty will make a car
last longer???

It actually might if the longer warranty period motivates the consumer
to keep up with the scheduled maintenance.

However, don't mix up cause and effect. Cars that last longer make
longer warranties economically feasible.

How about Brunei and the other major oil producers? I thought most
of them got paid for letting an outside company capitalize their
production.

No one will capitalize your production unless you pay them adequately
for it. If they are doing this, then they are using the credit of the
outside company and are paying both for the credit and for the
company's overhead.

I think the companies are paying the resource holders, not the other
way around! ;-) However, you may argue that the net profits of
Brunei are reduced by the cost of the capital for the oil company.

It would seem now that limiting growth a decade ago might have been
a smart move. Privately-owned companies can do that. Public
corporations are held hostage to the earnings and share appreciation
requirements of Wall Street.

I can see why you are in software.

Actually, software and hardware both. Software is less capital
intensive, though. Other than a few expensive compiler licenses,
not much capital is required. The PC board do require some
parts and equipment---but not more than I can purchase with
retained earnings.

Why would limiting growth be good? Growth is not a problem.

It is if your market shifts to the point where you cannot sustain
the worker and infrastructure levels you've acquired. Did the
big three automakers think they could increase sales and production
forever? At some point you saturate the market for your product
and revenue can only be sustained by increasing prices or cutting
costs. Wall Street is OK with that, but Main Street is not.

The problem today has to do with the
disruption of credit markets by allowing them to operate without
proper oversight.

I agree with that. Tighter controls on credit might also have
restrained the corporate impulse to grow without limits.

At least that is the problem in this country. Why
is Brittan's economy crapping out now?

Perhaps one of our British readers can answer that.

Perhaps their sales are not down because they DID prepare-- by
developing new markets and products.

You seem unsure. I'm asking what actions they took. Do you not
know?

Since we're not talking about my company, I do not know.

Isn't developing new markets and products what everyone does in
*all* market conditions?

Nope. I don't develop new markets and products for my company unless
an older market or product declines. But then I'm not a corporation
and can limit my growth based on personal, not market, considerations.
But I have a few advantages that the big corporations do not: I can
develop a new product in weeks or months, not years. I also have
no long-term business debt.

I'm not alone in this outlook. About half the US GDP comes from
small, non-corporate businesses. Those that have maintained some
limits on growth and capital debt are probably those best equippped
to handle the current economy.

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